In its annual filing this year, Amazon made it official: It’s now a player in “transportation and logistics services.”

For years, Amazon has claimed that its in-house shipping and delivery services will “supplement” FedEx, UPS, and the U.S. Postal Service, on which it has relied for more than a decade for its vast network of deliveries in the U.S. But in its 2019 filing, the company wrote:

“Our businesses are rapidly evolving and intensely competitive, and we have many competitors in different industries, including physical, e-commerce, and omnichannel retail, e-commerce services, digital content and electronic devices, web and infrastructure computing services, and transportation and logistics services…”

That last clause is new, and it suggests that Amazon now believes that its shipping and delivery services are not just supplementary anymore. The company is competing in this space — against the companies it once claimed were its partners.

Recap: Amazon’s Shipping Ambitions

To many in the industry, this comes as no surprise. Amazon has been quietly assembling the component parts of a delivery network for the better part of a decade. It started small enough, with Amazon building its own warehouses and package sorting centers. Then it began rolling out innovations in package storage, including lockers for apartment complexes and pick-up hubs in parking lots.

Then Amazon actually began moving goods itself. One of the first big initiatives was Amazon Flex, a delivery service that relied on contract drivers. The service was simple — picking up packages sold by third-party sellers from warehouses and moving them to customers’ doorsteps — and had been tested in India for two years before rolling out in the U.S.

In the following years, the company leased scores of aircraft and trucks to handle these self-fulfilled shipments. It even built out new facilities at two U.S. airports.

Amazon first called itself a “transportation service provider” in its annual filing in 2016. In 2018, Amazon began testing Shipping With Amazon, which directly challenged UPS and FedEx. Shipping With Amazon drivers picked up packages from third-party sellers, brought them to Amazon warehouses, and delivered them through Amazon distribution channels, cutting out third-party shipping companies. Amazon reportedly offered its service for prices that were half those of UPS to win sellers to the new service.

Finally, there’s Amazon Air, a 40-jet fleet that could grow to 100 planes within five years. One analyst predicted that Amazon Air could eat up half of UPS and FedEx’s air revenues in as little as six years.

In Q4 2018, Amazon’s shipping costs totaled $9 billion, a record for the company. CNBC reports that Amazon spent more than $27 billion on shipping in 2018.

What do these added services mean for Amazon shipping?

Amazon has finally made it clear: The company considers itself a logistics provider. Further, this is no small part of Amazon’s business — it is a core service, important enough to highlight in its annual report to investors.

Amazon now controls many links in its own delivery chain. It owns the warehouses. Seller Flex can deliver items from third-party sellers’ factories or warehouses to Amazon hubs, and Shipping With Amazon can delivery them to customers’ homes. Amazon Air can provide the two-day shipping that has made Amazon such an essential part of American life.

This move could make Prime delivery service even more popular and help it win even more customers. And as customers become more and more loyal to Amazon, its other services — grocery delivery, for instance — could gain additional traction.

What does this mean for the shipping industry?

Amazon’s traditional delivery providers are finally starting to acknowledge the e-commerce giant as a real competitor. Around the time that Amazon released its annual report, UPS CEO David Abney said he monitors Amazon “as if they were a competitor” — though, of course, they are also a huge customer.

FedEx CMO Rajesh Subramaniam offered a more dismissive take last year, warning that Amazon should not be “confused as competition with FedEx.” He cited FedEx’s 40 years of delivery experience.

But Amazon isn’t exactly a startup. The company has grown hugely over the last two decades. Its founder is the richest person in the world. And unlike FedEx and UPS, it can draw on nearly limitless capital, allowing it to expand much faster than its traditional competitors.

Finally, there’s the U.S. Postal Service. A committee appointed by President Donald Trump recently suggested that USPS raise its prices. More consequential for Amazon is its suggestion that USPS reconsider its promise to deliver to every U.S. address, including far-flung rural ones, for business customers. If Amazon (or FedEx or UPS) had to make those deliveries itself, it would certainly eat into their profit margins.

Amazon will invest even more in its shipping service this year, analysts predict. Mark Mahaney of RBC Capital Markets told CNBC in November, “There’s another investment cycle coming, and I bet you it’s around shipping and them actually coming out and directly competing with FedEx and UPS … I think it’s just a matter of time before that happens.”

Amazon’s annual report proves him right so far.

 

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